Amid challenges, UPS survey finds healthcare shippers have plans in place for success

As a sector with myriad moving parts, coupled with obstacles like increased risks, cost pressures, among others, the healthcare supply chain is replete with uncertainties.

But there are ways for the sector to counter these challenges, too, according to the seventh annual UPS “Pain in the (Supply) Chain healthcare survey, which was conducted for UPS by TNS, a provider of global market research services, and was based on data and feedback from more than 530 senior-level healthcare supply chain decision makers in the United States and Canada, Western Europe, Asia, and Latin America in the pharmaceutical, medical device, and biotech sectors.

According to the survey, the top two concerns globally among respondents, whom are senior decision makers responsible for supply chain and logistics in their respective sectors, were regulatory compliance at 60 percent and managing supply chain costs at 44 percent. Rounding out the top five were managing product security at 46 percent, contingency planning at 26 percent, and product damage or spoilage at 40 percent. Other concerns cited by respondents were access to global markets or new customer bases, visibility, and changing distribution and go-to market channels.

UPS Global Healthcare Strategy Director Melanie Alavi said it was not surprising to see regulatory compliance heading that list as it is such an enormous driver of everything within the healthcare supply chain, with it being the top concern in the survey for the third straight year.

“It has also been the biggest driver of change,” she explained. “In an environment of regulatory complexity, in some cases, people have been more willing to say ‘OK, not knowing how this regulation will pan out, let me wait and see before I act.’ That could be contributing to why real industry change has been slow. While stated objectives and plans do exist among the respondents to make change in their supply chains, real change has been slow to be made.”

Another key finding was that even though the economy is slowly improving, the aftereffects of the recession still linger in the form of tightened spending, reductions, and cutbacks, with 54 percent of healthcare supply chain executives in North America and Latin America, respectively still dealing with the recession’s economic blowback, and 46 percent and 43 percent, respectively, in Asia-Pacific and Western Europe expressing the same sentiment.

As for how the economy is impacting the healthcare supply chain, Alavi noted that declining reimbursement levels coupled with the recovery, can be a challenge for healthcare companies.  But, she added that there has been a helpful shift with the Affordable Care Act providing healthcare services for a larger number of people who need it, also creating a bigger market of consumers for the industry.

While the regulatory roadmap creates its own host of challenges in the healthcare supply chain, cost pressures are never far from top of mind. That was evident once again in this year’s survey, even though concern over cost management has gradually declined in recent years, with 44 percent of respondents citing it as a top issue, compared to 51 percent in 2013, 60 percent in 2012, and 64 percent in 2011.

And the top three cited strategies for healthcare shippers to manage costs cited in the survey were logistics and distribution partnerships at 78 percent, IT investment at 66 percent, and outsourced transportation management at 62 percent.

Alavi said the number of mergers and acquisitions within the healthcare supply chain can result in companies subsequently not having inventory in the right place or redundant distribution centers, while simultaneously incorporating and adding on an extra company and legacy supply chain into an existing one. She added that these mergers are happening in the industry at a fast rate, making it difficult for them to map things out efficiently.

“We often talk to customers about things like where they have distribution centers and current inventory, the priority markets for their product demand, and how we can create cost efficiencies in their supply chains,” she said. “This can be done by moving a partially utilized DC of their own to an outsourced shared location, where they then pay variable costs for distribution.. This is where they are turning to a 3PL and looking at a shared cost model. At UPS, we have the healthcare-compliant space to manage it, which can be attractive to a shipper.”

Given the number of risks in the healthcare supply chain, contingency planning for the healthcare supply chain ranked somewhat low as a chief concern among the survey’s respondents, with 26 percent citing it as a top supply chain concern. The survey found that specific challenges to addressing business continuity included unplanned events requiring contingency planning being too unlikely or infrequent at 61 percent, back-up infrastructure too expensive to deploy, and little to no prioritization given to this area, at 42 percent, compared to other more urgent matters.

For those healthcare shippers that are having success in mitigating risk and increasing competitiveness, UPS found that many are leveraging partnerships along with investments in technology with: 78 percent pointing to logistics and distribution partnerships as a top strategy to manage supply chain costs; 65 percent using logistics and distribution patterns to successfully access global markets; 61 percent using collaboration, including vested logistics and distribution partnerships, to successfully embrace new distribution and go-to-market channels, and 23 percent leverage M&A activity to do so; and 59 percent working with a 3PL as a top strategy to increase efficiencies and improve competitiveness.

“Companies that embrace new technologies and transformative supply chain strategies to mitigate risks will be more likely to capitalize on new growth opportunities in the healthcare marketplace of tomorrow,” said John Menna, UPS vice president, global healthcare strategy, in a statement.